Pimco sees inflation in America’s future

I was just re-reading my November post on quantitative easing when I got an alert about Pimco’s inflation call. While I still see downside risk for the economy, and, consequently, deflation, I have grown more worried about inflation — one reason for re-reading the post. Pimco is not the only one here, Warren Buffett and Marc Faber see inflation too — and that’s not exactly bullish for Treasuries.

“Inflation will rise in the medium term,” Pimco said in a report today on its Web site written by Chris Caltagirone and Bob Greer. Treasury securities that give investors protection against rising prices for goods and services are “attractive now,” the report said.

Commodity producers are delaying projects, which may limit supply when global growth resumes, according to Pimco. That increases the potential for higher prices if demand increases, Pimco said.

U.S. yields indicate inflation forecasts rose this year.

The difference between rates on 10-year notes and Treasury Inflation Protected Securities, or TIPS, which reflects the outlook among traders for consumer prices, widened to 87 basis points from nine basis points on Dec. 31. The spread has averaged 2.27 percentage points for the past five years.

Buffett said March 9 on the CNBC television network that efforts to stimulate a recovery may lead to inflation rates exceeding those in the 1970s.

Faber, publisher of the Gloom, Boom and Doom Report, said the same day on Bloomberg Television that the U.S. is laying the foundation for more inflation.

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator in print and on television for the past decade. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.

Gross, Buffet, and Farber know what they are doing. They are opinion leaders and are trying to imbed inflation expectations into the public’s perception. I’m sure that privately they are concerned about deflation.